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Lake Kawaguchi and Mount Fuji of Japan are shown in this photo taken on May 30, 2013. [Photo/dfic.cn]
Weaker yen, higher Chinese wages affect Jan-April inflows of capital
Japan's direct investment in China plunged in the first four months of 2014, with many Japanese companies taking a wait-and-see attitude amid uncertain bilateral business relations.

The depreciation of the yen and rising wages in China also took a toll.

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China absorbed $40.3 billion in total FDI from January to April, up 5 percent from a year earlier, indicating steady global investor confidence in the world's second-largest economy.

However, FDI from Japan dropped 46.8 percent to $1.6 billion. Investment from the United States fell too, but by a less dramatic 11.4 percent to $1.2 billion.

Chen Yongjun, a professor at the School of Business of Renmin University of China in Beijing, said Japan's investment in China's heavy industry - especially in the vehicle and electronics sectors - significantly declined after sales of Japanese vehicles, auto parts and electronic products plunged in 2012.

"The decline came after the Japanese government's unilateral move in 2012 to 'nationalize' the Diaoyu Islands, which have been Chinese territory since ancient times," said Chen.

Meanwhile, vehicle producers from the US, Germany and South Korea moved to grab market share in China since 2012.

"Japanese companies in different sectors have changed their business strategies by focusing more on market development and the service industry in China," said Chen.

Benefitting from healthy bilateral relations, South Korea raised its investment in China at a fast pace in the first four months.

FDI increased 138.5 percent to $1.8 billion. Investments from South Korea were concentrated in vehicle manufacturing, high-end semiconductors, new materials and home appliances.

Shen Danyang, spokesman for the Ministry of Commerce, said China's FDI growth was boosted by investment from other economies such as Hong Kong, Singapore and South Korea during the January-April period. The country's overall environment for FDI has remained unchanged and promising.

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"The Chinese government aims to attract more FDI to services, advanced manufacturing and environment-related industries, in a bid to help domestic factories make higher value-added products," said Shen.

China's service industry drew $22.5 billion in FDI in the first four months, up 19.1 percent from a year earlier, while investment inflows into the nation's manufacturing sector fell 11.4 percent to $14.5 billion.

"Japan now is relying on quantitative easing to stimulate its economy, and the devalued yen and China's rising labor costs have also forced Japanese companies to pay more when investing in China," said Song Hong, a researcher at the Institute of World Economics and Politics.

The institute is under the Chinese Academy of Social Sciences, a top government think tank.

To seek new growth points from the global market, Song said Japan also has encouraged its companies to invest in the member nations of the Association of Southeast Asian Nations to "diversify investment into ASEAN as an alternative to China".

Keen to gain more resources and goods orders from Africa, Japanese Prime Minister Shinzo Abe paid a visit to the continent earlier this year to boost business ties to help Japanese companies gain ground on their European and Chinese rivals in the lucrative African market.